Monday, September 30, 2013

Why the City of London has a problem with criminality!

I am getting a lot of responses, (some genuinely
understanding, some aggressive and unpleasant) from readers who assert that I
have misunderstood the criminogenic nature of the City of London and its norms.

All too often, the writers assume as a matter of course
that profitability, is an admirable status, however it is achieved.

My point has always been that if that is true (and it is
an assertion I do not promote), then how does one define what is right and what
is wrong within a financial market? And if that cannot be achieved
satisfactorily, then how do we assert the same for society as a whole?

There are a number of words and phrases that are
routinely trotted out to assert the legitimacy and the genius of the financial
sector; innovation, entrepreneurship, profit-centered, revenue-focused, et al.

Politicians and free-market apologists constantly assert
the importance of these contexts, and it seems that increasingly, particularly
in recent years, their encouragement and enhancement has become the sine qua
non of the financial climate in which we have been living.

It presumes that all can be forgiven in the pursuit of
profit.

While this may be an admirable, unfettered free-market sentiment,
it does not accord with reality.

The idea that a market can be permitted to operate
without controls or accepted norms, (which apply to everyone) is a fairly
recent phenomenon, and one which needs some deconstruction.

Nevertheless, it is a status which has applied itself
most rigorously to the operation of our free market economy in recent years,
culminating in the ultimate collapse of banking system as we had come to know
it, the almost total melt-down of our financial system, and a state of affairs
from which we are only now beginning to wonder whether there is any possible
light at the end of the tunnel!

There is no other way to describe the criminal business
conduct that has identified the retail banking system in recent years. We have
only to look at the dishonest conduct undertaken by banks in the criminal
defrauding of their clients in the PPI scandals, or the interest-rate swaps
episodes.

I refuse to use the conventional accepted shibboleths
(mis-selling) because that phrase deliberately masks and re-determines what was
by any other means, a policy of organised criminality.

We only have to observe the unconditional refusal by the
banks to implement the anti-money laundering regulations to their fullest
degree to understand that the financial sector puts profit above all else.

We only have to consider the way in which the banks have
routinely flouted, distorted and manipulated the LIBOR market rules, or
deliberately manipulated other market standards in order to make profits for
the few, at the expense of the many, to realise that criminal behaviour is
rampant in these markets.

Yet no-one is willing or seems able to talk about
ordinary criminality when profits are to be made!

Even when I submitted evidence to the Banking Commission
and talked about organised criminality within the banking sector, no-one knew
how to debate this phenomenon!

Whenever there is established evidence which demonstrates
that downright criminality is being carried out, the City Establishment draws
its wagons into a circle and routinely denies the assertion, trotting out the
usual bromides about '...a few rotten apples...' et al!

These senior
Establishment figures have all been earning huge sums of money by way of
bonuses, dividends and pension contributions as a result of the criminal proceeds,
did no-one even once stop to ask where all this money was coming from?

The fact is that no-one did, because no-one wanted to,
because to do so would have been to acknowledge the ghastly and unpalatable
truth that the profits being earned were in some way being earned dishonestly.

So, the City and its habituees have a very clever way of
nullifying the impact of this recognition.

They adapt the use of what criminologists call
'techniques of neutralisation', which can be defined as "...a theoretical series of methods by which
those who commit illegitimate acts temporarily neutralize certain values within
themselves which would normally prohibit them from carrying out such acts, such
as morality, obligation to abide by the law, and so on.

In simpler terms, it is a
psychological method for people to turn off 'inner protests' when they do, or
are about to do something they themselves perceive as wrong..."

This concept was first formulated by
David Matzaand Gresham Sykes while they were working on Edwin
Sutherland's theories of 'Differential Association'in the 1950s.

While working on juvenile
criminality, they theorised that the same techniques could be found
throughout society and published their ideas as long ago as 1964 in a book
called 'Delinquency and Drift'.

Their theory states that '...people are always aware of their moral obligationto abide by the law, and that they
have the same moral obligation within themselves to avoid illegitimate acts...'

Thus, they reasoned, when a person did commit illegitimate acts,
they must employ some sort of mechanism to silence the urge to follow these
moral obligations.

They were able to explain how offenders 'drift' from illegitimate
to legitimate lifestyles repeatedly, as they retain the moral code, rather than
wipe it clean.

Such a phenomenon can be seen repeatedly within the lifestyle and
the culture of the City practitioner.

Bankers and other financial elite members will make significant
use of conduct norms that suggest high standards of conventional behaviour, and
which give all the impression of conforming to an established set of
behavioural standards.

Thus they will contribute to funds and collections designed to
retain art-works for the nation; they will become regular attendees at the
Royal Opera House, they will contribute to established charities, they will
sponsor important sporting events and fund sporting teams; they will look and
sound exactly as they believe the ordinary public would want to see them
behave, if they wish to benefit from the high status that such compliance would
be considered to bestow upon them.

In so doing, they will seek to attract a veneer of sophistication
which they believe is demanded of their position within the financial sphere.

At the same time however, they will conduct their businesses in a
way which is little short of blatant organised crime. However, they themselves
are so far removed from the activities of those who business it is to bring in
the money on which their businesses rely, that they are able to maintain an air
of self-righteous denial, whenever it is suggested that they too are tarred
with the same brush as the lower orders who are carrying out the criminal
activities.

But it has been ever thus.

Over many years, the City of London has built up a very
sophisticated and extremely clever method of providing itself with the
wherewithal to maintain a high standard of income and reward, safe from the
prying eyes of hoi polloi or anyone who would wish to challenge their hegemony.

I used to work for a big commercial law firm within the Square
Mile. I managed a practice which was designed to offer compliance advice to
commercial businesses to ensure that they operated inside the financial regulations
defined by Parliament.

One day, I was approached by a huge financial services company who
wished to seek my advice on an aspect of the new anti-money laundering
regulations. The lawyer who rang me made it perfectly clear he wanted to do
business straight away with me, he said ' the clock is ticking', meaning we
were on the record right away.

He wanted me to give him some advice about the nature of a
particular insurance policy which his firm dealt in daily, selling them to all
and sundry. He wanted me to advise him that this particular kind of contract
did not need certain regulatory requirements to be undertaken when it was sold.
If I had agreed with him , his firm would have saved themselves a fortune in
client identification costs, and continued to make another fortune selling
these policies!

However, the question he was asking was so patently ridiculous,
and the answer demanded so obviously improper, that it only took me a few
minutes to explain to him why he was wrong and his request could not be acceded
to.

He continued to badger me for about 6 weeks, trying different
computations along the 'what if' scenario ploy! At every stage, I reverted to
my original answer and told him that in my opinion, he was wrong, and he should
stop wasting his money and my time.

In the end, he backed off, but then refused to pay my (very
modest) account.

I raised it with one of my principals, who just laughed and said;

"...You should have told him what he wanted to hear in the
first place, charged him a huge fee, which he would have paid gladly, and
forgotten you ever heard of him..."

"...But what he wanted was completely illegal..." I
said, "...and if I had so advised him, his firm would have been acting
unlawfully and making a huge sum of money illicitly...and we would have been
guilty of negligence"

"...Yes..." came the reply, "...but why do you
care..?"

"...Because it would have been my advice that was bad, and I
pride myself on knowing the law and giving good advice..."

"...But that's not what he wanted..." came the reply.
"...He consulted you because he thought you would be so over-awed at
winning such a prestigious client, that you would do anything he wanted. Then,
if he got into trouble with the regulator, he would have used our advice as a
defence to any of their charges and blamed your incompetence. The regulator
would have accepted that argument, his firm would have walked away free and you
would be pilloried for being not very skilful! It wouldn't have mattered,
no-one would have cared anyway, your reputation doesn't matter, and you would
have won some valuable client fees. As it is, you have won nothing and now he
won't pay and you have pissed off a potentially important client..!

It was at this point that I started to see the commercial world
through new eyes!

As I continued in the City I observed how the lawyers and the big
accounting firms are there to do whatever the big banks and other financial
entities want them to do, regardless of the rightness of the law. The old
accountant's joke about 'what does 1 and 1 make', and the answer 'it depends
whether you are buying or selling' became less of a giggle and more of a
reality, the longer I worked there!

I watched tax lawyers creating vast structures for foreign tax
cheats who wanted to use the City of London to disguise their tax evasion. I
asked them why it would be illegal to do this for a British client but not a
foreign client? When I pointed out that the new anti-money laundering laws made
such conduct illegal, even for foreign clients they looked at me as if I was
mad. One lawyer in a major City firm went so far as to seek an opinion from
Claire Montgomery QC a leading criminal tax barrister, as to the correctness of
my opinions. He was crestfallen when the learned lady agreed with my views.

I watched and observed while the major banks decided that they
were not going to comply with the provision of the anti-money laundering
regulations. I was invited to discuss the issue at a major City dining club,
but was howled down by a group of senior compliance officers who told me that
they had no intention of engaging with these laws and regulations, despite the
fact that they were ensconced in law, because they were a waste of time, and in
any event, they were not paid to turn good money away from the bank.

So, when I say that I know that the City and its establishment
openly connives at the likelihood that they are breaking the criminal law with
impunity, I do so in the full and certain knowledge that it is happening
blatantly and openly.

My knowledge is confirmed and compounded when I see no criminal
cases being brought for open and deliberate crimes which have been committed by
the banks. No-one was prosecuted at HSBC for cynically laundering money for the
Mexican drug cartels. How was that allowed to happen? No-one was prosecuted for
defrauding customers of billions of pounds worth of PPI contracts. How was that
allowed to happen?

The crimes of the British banking industry have been varied and
many, and all of those who profess the trade of banker (it is not a profession
and never has been), know that much of what they have been doing is illegal,
dishonest and downright criminal. They are all caught up in it, they are all
tainted by it and they all know what has been going on.

Every single one of them is complicit in an industry which has
given crime a whole new dimension.

It is only when the business conduct which the City wishes to
profess can be seen to be transparent and honest that we will be able to rest
assured that the profits being generated are indeed the proceeds of something
other than crime. However, I suspect that the wages of sin are far more
lucrative than any other form of income!

And all the time it remains easier to commit crime within the City
of London because the criminals remain protected by the power of the City
Establishment, the worse things will get, the more de-stabilised the foundation
will become and the more people will be incentivised to break the law. This is
not rocket science, it is an open recognition that until we do something to
stand up to the fraudsters, then the City of London will remain a criminal
sink!

9 comments:

Rowan,I am with the Sunday Politcs and we are doing a piece about money laundering and the like and we are hoping to get hold of you to see if you would like to be be interviewed for the programme this week.

Please contact me on stevetolley@junipertv.co.uk or 0207 407 9292. It would be great to hear from you ass soon as you get this.

Thanks again for telling it how it is Rowan. Have linked this and your previous post to my own blog post.http://lifeafterdebts.blogspot.co.uk/2013/09/fines-and-punishment.htmlExcellent read and I look forward to seeing you on the Sunday politics show!

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!